Sir John Bourn, the head of the National Audit Office, has qualified his opinion on the 1999-2000 accounts of the Ordnance Survey, the government Agency responsible for the official mapping of Great Britain.
In his report to Parliament on the Agency’s first set of accounts as a Trading Fund, Sir John said that he had taken this step because the Ordnance Survey’s decision not to value the National Topographic Database, the definitive computerised map of Great Britain, had resulted in a significant understatement of the Agency’s tangible fixed assets. It may also have distorted the view given by measures of reported financial performance (e.g. the return on capital employed).
In 1999-2000, the Ordnance Survey’s turnover from the exploitation of information held on the database was nearly £100 million. On the basis of expert advice the NAO has estimated that the value of the database to the business is unlikely to be less than £50 million.
Ordnance Survey consider the database to be akin to intellectual property, and an intangible fixed asset, on which no value need or should be placed in the Agency’s accounts, in accordance with Financial Reporting Standard (FRS) 10 – “Goodwill and Intangible Assets”. This requires that internally generated fixed assets are valued, or ‘capitalised’, only where there is a readily ascertainable market value evidenced by an active market in similar assets.
However, in Sir John’s opinion this view is not consistent with normal accounting practice. Unlike intangible fixed assets such as trade marks, brands or patents, the National Topographic Database is an accurate representation of a physical reality, unaffected by opinion, taste, judgement, reputation or belief. It should therefore be accounted for as a tangible fixed asset and capitalised in accordance with general accounting practice, in particular Treasury guidance and FRS 15.
The uniqueness of the database means there are no direct parallels in government or the private sector. Further, the NAO consider that the database is analogous to internally generated software which, according to Treasury guidance and FRS 10, must be valued as a tangible fixed asset. This is because it represents expenditure both of continuing use in a business and supporting the generation of future economic benefits.